How much of your nest egg can you spend each year without running out of money in retirement? Most people would answer this way; if the market averages 7% or 8% then I should be able to withdraw that much and live off the interest.
This logic could work if the market produced 7% or 8% each year. But as you and I both know it does not. You can make or lose money each year in the market.
Because of this reality financial advisor William Bengen sought to find an answer to this question. He looked through history and all the ups and downs of the market and sought to find out the amount that could safely be withdrawn without running out of money.
He published his results in the Journal of Financial Planning.
Bengen found that retirees could safely spend about 4% of their retirement savings in the first year of retirement. In subsequent years, they could adjust the annual withdraws by the rate of inflation.
Following this simple formula, Bengen found that most retirement portfolios would last at least 30 years.
WHAT THIS MEANS FOR YOU
Let’s say you have saved $500,000 for retirement based on this rule how much can I withdraw each year?
Lets say you tried to take
40k a year
That 8% withdraw rate would have been too high, 85% of the time you would have run out of money.
Lets say you tried to withdraw 32k a year for 30 years
You would have failed historically about 56% percent of the time
Now notice what happens if we use the 4% rule and withdraw 20k
Your chance of success went up to 96%
It is important to note that this withdraw amount does not include the taxes you would have to pay or the fees. With both taxes and fees included this amount could easily be 14,000 a year(1,166.66 a month) left for you to use in retirement
Maybe you expected to have more spendable cash flow if you worked hard to save up such a nest egg.
The good news is that we have been helping clients put their money in position to generate double the amount of net spendable income completely tax free.
If you would like to see if we can do the same for you feel free to reach out
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